Flooding is the number one natural disaster in the U.S., with damage costs averaging around $42,000. Yikes!
What’s worse, homeowner’s insurance doesn’t cover flooding. So what can you do? Sure, there’s disaster relief, but only when the president declares a disaster.
Don’t wait until then. A flood insurance policy will cover your home regardless of whether a disaster is declared or not.
But how does it work? How much does it cover? What are the coverage options?
We’ll answer these questions and show you what to consider before you buy.
Before looking for a policy, you need to understand these principles:
- Your Risk
- The Government’s Role
- Types of Coverage
- Policy Limits
Your risk is the likelihood of flooding where you live. The government has designated certain parts of the country as flood zones, areas with a 1% chance of flooding within a given year. Anyone living in these zones has to have flood insurance.
Outside of those areas, flood insurance is optional but recommended. Inland areas are as prone to flooding as the coast. Everyone should have protection, and they can, through the government.
The Government’s Role
In 1968, Congress created the National Flood Insurance Program. Its purpose was to provide flood coverage, which at the time was considered uninsurable.
Managed by FEMA, the NFIP is the primary source for most flood insurance. But their policies aren’t cheap, and their coverage has limits.
Types of Coverage and Policy Limits
NFIP insurance has two coverage options: building and contents. Building coverage deals with the structure of the home. Content coverage protects what’s in it.
Both of these options have limits. For building coverage, it’s $250,000, for residential properties. Content coverage has a $100,000 maximum.
You can purchase these options separately, but most homeowners have both. On average, it takes about 30 days for the policy to take effect.
Now that we know the basics behind flood insurance let’s look at what it covers–and what it doesn’t. In general, flood insurance covers anything directly damaged by a flood.
For example, if the sewer backs up, damaging your plumbing, as a result of flooding, you’re covered. If something else causes it, you’re not. The two insurance options, building and content, also cover specific items.
Building coverage insures:
- The building and its foundation
- Electrical and plumbing systems
- Central AC, furnaces, and water heaters
- Refrigerators, stoves, and built-in dishwashers
- Permanently installed carpet and paneling
- Bookcases, wallboards, and cabinets
- Window blinds
- A detached garage (up to 10% of the coverage limit)
Content coverage insures:
- Personal belongings like furniture, clothes, and electronics
- Portable appliances
- Washers and dryers
- Food freezers and the food in them
- Carpets not covered under building protection
- Valuable artwork and furs (up to $2,500)
What these options DO NOT cover:
- Avoidable water damage including mold and mildew
- Money, precious metals, and important papers
- Any property outside the home like decks, patios, pools, and fences
- Living expenses
- Financial losses due to interruption of business or loss of property
- Most vehicles
Both building and content cover a wide range, but flood insurance is neither a value policy nor a guaranteed replacement policy. Instead, adjusters base payout on RCV (Replacement Cash Value) and ACV (Actual Cost Replacement) up to the coverage limit.
As we’ve seen, flood insurance covers quite a bit, but that coverage lessens once you enter the basement. That’s a problem since basements pose the highest risk for flooding.
Insurance covers items necessary to the structure of the house. These items include furnaces, some circuit breakers, and even your washer and dryer.
However, if you turn your basement into an apartment or use it as a playroom, insurance won’t cover its contents. You’ll likely need private insurance to do so.
We mentioned earlier that flood insurance isn’t cheap. Its price depends on a variety of factors including:
- Your location and elevation
- Your flood risk
- How much coverage you buy
- What you cover
- What deductible you choose
On average, it costs $650 per year. It sounds like a lot, but the NFIP gives preferred rates to those living in low to moderate risk areas. They can combine $20,000 worth of building coverage with $8,000 worth of content coverage.
It amounts to a yearly payment of $129. That said, most flood claims amount to around $43,000. You’ll likely need more insurance to stay covered.
However, to see if you qualify, you can contact a flood insurance agent or find your area on FEMA’s flood map.
Most homeowners get all their flood insurance from the government. It’s cheaper than private coverage since the NFIP keeps prices low-ish.
You will pay more for it, and it’s scarce, but private insurance can give you extra coverage. You can go here for more info.
Where to Get Your Flood Insurance Policy
Flooding is the most common cause of disaster damage. Insuring against will help you replace what you’ve lost. But getting a flood insurance policy presents its own difficulties.
You have to go through the government. They provide extensive coverage, but it does have its limits, especially in the basement. Knowing your risk and what you want to be covered will determine how much insurance you should buy.
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